Conflict risk the single most prominent ESG criterion in asset-weighted terms for institutional asset owners.
A third of all assets under professional investment in the US are now invested sustainably, according to the US SIF Foundation’s 2020 biennial report. Total US-domiciled assets under management (AUM) using sustainable investing strategies grew from US$12.0 trillion at the start of 2018 to $17.1 trillion two years later, an increase of 42%.
Since 1995, when the US SIF Foundation first measured the size of the US sustainable investment universe at US$639 billion, assets have increased more than 25-fold, a compound annual growth rate of 14%.
The US SIF Foundation’s ‘Report on US Sustainable and Impact Investing Trends’ counts two main strategies as sustainable investing: ESG incorporation (applying various environmental, social and governance (ESG) criteria in investment analysis and portfolio selection), and filing shareholder resolutions on ESG issues.
The report identified US$16.6 trillion in US-domiciled assets at the beginning of 2020, held by 530 institutional investors, 384 money managers and 1,204 community investment institutions practising ESG incorporation. In addition, 149 institutional investors and 56 investment managers controlling US$1.98 trillion AUM led or co-led shareholder resolutions on ESG issues from 2018 through to the first half of 2020. Eliminating double counting for assets produces the net total of US$17.1 trillion.
Of the US$16.6 trillion invested via ESG incorporation strategies, slightly more than US$12 trillion was invested on behalf of institutional investors, with the balance largely held for retail and high net worth investors.
US SIF Foundation’s analysis of the institutional asset owners representing 51% of the US$12 trillion found that conflict risk (US$2.7 trillion) was the single most prominent ESG criterion in asset-weighted terms, followed by climate change, tobacco, board issues and natural resources / agriculture. These priorities differed slightly from those of money managers, with climate change, anti-corruption concerns, board issues, natural resources / agriculture and executive pay the five most important ESG-specific issues in asset-weighted terms.
Shareholders acting on concerns
Over the 2018-2020 period, corporate political activity was the most frequent topic for shareholder proposals, with 270 filed by institutional investors and investment managers. These resolutions focused on company contributions aimed at influencing elections or on corporate lobbying to influence laws and regulations. “Many of the targets were companies that have supported lobbying organizations that oppose regulations to curb greenhouse gas emissions,” said the report.
The other most common issues raised in shareholder proposals included labour and equal employment, climate change and executive pay. The report found that more proposals on social and environmental issues were finding higher levels of support, but noted that investors are increasing active engagement in other ways.
A subset of survey respondents, including 44 institutional asset owners with more than US$1 trillion in total assets and 77 money managers with US$7.8 trillion in AUM, reported that they engaged in dialogue with companies on ESG issues.
“Money managers and institutional investors are using ESG criteria and shareholder engagement to address a plethora of issues, including climate change, sustainable natural resources and agriculture, labor, diversity and political spending,” said Lisa Woll, CEO of the US SIF Foundation. “Additionally, retail and high net worth individuals are increasingly using this investment approach with US$4.6 trillion in sustainable investment assets, a 50% increase from 2018.”
“As a practitioner of sustainable investing for over three decades, we believe it is more urgent than ever to embrace ESG considerations to help alleviate the crises our society faces, from income inequality to global warming, and to manage risk and improve investment performance,” said Iyassu Essays, Director of ESG Research of Parnassus Investments and member of the US SIF Board. “We hope that the findings will drive new investors to utilise sustainable investment strategies.”
The US SIF Foundation undertakes educational and research activities to advance the mission of US SIF, the Forum for Sustainable and Responsible Investment, which advocates for the advancement of sustainable and impact investing across all asset classes.